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Michael Pope Blog post by Michael Pope

Improving Financial Literacy

In previous newsletter articles, we looked at the results of an international study which highlighted the high poverty rate amongst older Australians compared to other countries. In this newsletter, we look at a recent international study which casts Australia in a more favourable light.

The OECD Programme for International Student Assessment (PISA) has recently released a report on the results from their 2012 testing in the area of Students and Money – Financial Literacy Skills for the 21st Century[1]. The paper reports the results of the PISA 2012 financial literacy assessment, which was administered to approximately 29,000 students in 18 countries and economies, representing 40% of world GDP. This was the first time that the PISA study had included an assessment of the financial literacy of young people, although this aspect of the study was optional for countries involved.

According to the study, Australian students achieved a mean score of 526 in the testing, placing us equal third amongst the countries and economies tested, behind Shanghai-China, the Flemish Community of Belgium and on par with Estonia and New Zealand. As would be expected from this high ranking, the Australian score was also above the mean score for the thirteen OECD countries included in the study which was 500. The report identified that students in some countries that perform well in financial literacy, including Australia, score higher in financial literacy, on average, than their performance in mathematics and reading would predict, but I couldn’t identify any discussion into explanations for this observed outcome.

However, the report does highlight a number of initiatives within Australia that are aimed at improving financial literacy amongst Australians, starting with the National Financial Literacy Strategy[2]. This strategy, co-ordinated by the Australian Securities and Investments Commission (ASIC), provides a framework to develop and deliver initiatives to improve financial literacy in Australia. The report also mentions the recent release of the latest strategy for 2014-17, and the associated Action Plan[3].

Also noted in the report is ASIC’s freely available MoneySmart Teaching[4] professional learning program, which forms a major component of the MoneySmart website, which was launched in 2011 to replace the previous FIDO and Understanding Money websites.

So there is a lot of good news in this report for the future of financial literacy in Australia. There are, however, a few areas which clearly represent room for improvement in financial literacy education.

For example, although Australia scored fourth highest on the rating “Percentage of students for whom financial education is available”, and second highest on “Percentage of students for whom financial education is available for at least two years”, there are still over 25% of students in Australia who receive no formal financial education through the education system.

Another concerning figure from the report is that nearly 50% of students participating in the study attended schools where no teachers attended professional development in financial education. And these two figures are despite the fact that “…education authorities in all jurisdictions have endorsed three iterations of the National Consumer and Financial Literacy Framework since 2005.”

Finally, and perhaps of most concern, is the distribution of levels of financial literacy. The study classifies students into one of five levels based on their performance in the test, with Level 2 being considered the “baseline” and a result of Level 1 indicating that students are “… not yet able to apply their knowledge to real-life situations involving financial issues and decisions”. Despite having an above-average percentage of students at Level 5 (16%), a disturbing 10% of Australian students participating in the tests were classified as Level 1.

If there is some good news to be taken from this statistic, it is the fact that that this issue has already been identified and highlighted by policy makers[5], unlike the previous report on the poverty rate amongst older Australians[6], which appears to have been largely ignored by governments at all levels. (As an aside, the report provides two interesting statistics relevant to Australia’s aspiration to be a country of equal opportunity – there are no discernible gender differences in our average financial literacy scores, and Australia has the lowest ranking of all the countries in the study for the “Proportion of the variation in students’ performance explained by family wealth”. )

But the dominant message from the report for Australians is that, while there is room for improvement, we are doing reasonably well in our efforts to improve the financial literacy of younger Australians, and gives an early indication that the National Financial Literacy Strategy may be having a positive effect.


So what has all this to do with Money Planning?

In a report published last year titled Financial Literacy and Retirement Planning in Australia[7], the authors concluded that there is “…a statistically significant relationship between financial literacy and retirement planning”. While this should come as no great surprise, the report goes on to say that “…after 25 years of mandatory retirement saving, a large minority of Australians does not know the relevant financial basics nor are they actively preparing for retirement. In addition, the results highlight certain demographic groups that are most at risk, including the young, women, the least educated, those not in the labor force and those not employed.”

While it is great news that we are moving in the right direction to assist younger people to become more financially aware, and that there is emerging evidence that this will assist them to better prepare financially for their retirement, we still have much work to do to provide the same guidance and assistance to Australians who are no longer in the education system (which is most of us).

And without being forced to sit in a classroom like most fifteen year olds, the only education for those of us who have left school is that which we arrange for ourselves.

So it seems that there are two choices for those who want to become more financially literate and plan for their retirement – ask a fifteen year old, or (seriously) accept the responsibility for your own retirement planning and seek out the resources that you need to get started.

At Empower Wealth, our goal is to help Australians achieve their desired standard of living later in life by creating a superior financial outcome, and we have developed a suite of proprietary financial modelling tools to help people understand their current and potential future financial position, together with money management strategies to give people more control of their cashflows, get their money working harder for them and ultimately, get a better financial outcome in life.

If you would be interested in seeing how these tools and strategies could be applied to your own personal financial situation, please come and see us for a free one hour consultation.


[1]“PISA 2012 results – Volume VI: Students and Money – Financial Literacy Skills for the 21st Century”
Accessed 18th August 2014

[2] “National Financial Literacy Strategy
Accessed 18th August 2014

[3] “National Financial Literacy Strategy 2014-17: Action plan
Accessed 18th August 2014

[4] “MoneySmart Teaching
Accessed 18th August 2014

[5] ASIC Media Release 14-162 : “Australian students score well in PISA financial literacy test but more to be done
Accessed 18th August 2014

[6] Global Age Watch Index 2013
Accessed 9th October 2013

[7]Agnew, J., H. Bateman and S. Thorp (2013), “Financial Literacy and Retirement Planning in Australia”, Numeracy, Volume 6, Issue 2
Accessed 18th August 2014

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